»^ 


UNIVERSrTY  OF  ILUNOB-URBANA 


3  0112  062004830 


AN  ADDRESS 

BY 

Daniel  Willard 

President  of  the  Baltimore  and  Oliio  Railroad  Company 

BEFORE  THE 

BOSTON  CHAMBER  OF  COMMERCE 

JUNE  12.  1913 


Outlining  the  position  of  the  railroads  in  the  matter  of 

application  by  the  Eastern  Railroads  to  the 

Interstate  Commerce  Commission 

for  a  general  increase  of 

five  per  cent,   in 

freight  rates 


K^^ 


•60- 


In  the  summer  of  1910  the  railroads  operating  within 
what  is  known  as  official  classification  territory — which 
may  be  roughly  described  as  that  part  of  the  United 
States  lying  east  of  the  Mississippi  and  north  of  the  Ohio 
and  Potomac  Rivers — filed  with  the  Interstate  Commerce 
Commission  new  tariffs  which  provided  for  an  increase 
of  certain  freight  rates,  chiefly  those  known  as  class 
rates,  and  the  advance  so  proposed  varied  from  8  to  20 
per  cent. 

At  the  request  of  the  Commission  the  new  tariffs  were 
suspended,  and  a  hearing  was  ordered  at  which  the  rail- 
roads were  given  opportunity  to  present  their  case  and 
tliose  opposed  equal  opportunity  to  present  theirs.    The 
railroads  based  their  claims  chiefly  upon  the  argument 
that  their  expenses  had  been  greatly  increased  by  higher 
wage  schedules  recently  granted  to  their  employes,  but 
they  also  called  attention  to  the  fact  that  taxes  had  in- 
<-1creased  largely  within  recent  years,  and  that  legislation 
■/enacted  during  the  same  period — both  State  and  Federal 
^"^> — had  also  very  considerably  increased  the  cost  of  opera- 
'_.tion — all  of  which  so  narrowed  the  margin  between  in- 
come and  outgo  that  unless  they  were  permitted  in  some 
/^  manner  to  increase  their  revenue,  the  net  earnings  of  the 
future  would  not  be  sufficient  to  enable  them  to  maintain 
_;  tlie  properties  in  a  satisfactory  condition,  or  provide  such 
'^  improvements  and  additions  as  the  growing  commerce 
;  of  the  country  constantly  demanded.     The  Commission 
took  the  case  under  consideration  and  in  its  report  dated 
^February  22nd,  1911,  in  which  it  reviewed  in  a  careful 
r  and  able  manner  the  whole  question,  announced  its  deci- 
^  ^ion   withholding  its  aj^proval   of  the  new  tariffs,  and 
^ordering  tlinl  tlio  rates  in  effect  at  fliat  fimo  should  be 
'-^continued. 

5      A  careful  reading  of  the  report  known  as  I.  C.  C.  No. 

''3400  discloses — first,  that  the  railroads  failed  to  establish 

in  the  minds  of  tlie  Commission,  a  necessitv  for  increased 


revenue;  second,  it  was  suggested  tliat  even  though  a 
necjessity  had  been  established,  it  was  doubtful  if  the 
plan  proposed  was  the  right  or  best  way  in  which  to 
obtain  such  revenue;  third,  it  was  further  pointed  out 
that  there  was  a  general  depression  of  business  at  that 
time,  and  that  the  carriers  ought  not  to  expect  to  raise 
their  rates  when  business  was  dull.  However,  the  Com- 
mission also  said,  in  effect,  that  should  it  come  about 
that  their  views  were  not  sustained  by  future  develop- 
ments, and  should  it  appear  at  any  time  that  there  was  a 
real  necessity  on  the  part  of  the  carriers  for  increased 
revenue,  in  order  that  they  might  be  in  position  to  pro- 
vide such  facilities  as  the  public  required,  that  they 
would,  upon  request,  give  the  matter  fui'ther  considera- 
tion. They  said  that  they  would  not  hesitate,  under  such 
circumstances,  to  authorize  such  rates  as  would  be 
reasonable. 

During  the  first  two  years  immediately  following  the 
decision,  the  commerce  of  the  country  showed  little,  if 
any,  increase,  but  during  the  present  fiscal  year,  there 
has  been  a  marked  activity  in  business  of  all  kinds,  and 
the  gross  earnings  of  the  railroads  generally  for  the 
yeav  ending  June  30,  1913,  will  probably  be  the  largest 
in  their  history.  It  might  be  supposed  from  this,  and  as 
a  matter  of  fact,  it  has  been  urged  in  some  quarters  that 
the  railroads  should  now  be  able  because  of  increased 
earnings  to  show  sufficient  surplus  above  interest  and 
di'sddend  requirements  to  justify  such  further  capital 
expenditures  as  may  be  necessary.  I  shall  undertake  to 
show  that  such  is  not  the  case. 

First  of  all,  the  rates  which  were  in  effect  in  1910  have 
not  in  the  aggregate  been  maintained — that  is  to  say, 
while  certain  increases  have  been  made  during  that 
period,  decreases  have  also  come  about.  The  net  result 
has  been,  for  example,  a  reduction  in  the  earnings  of  thfl 
Baltimore   &   Ohio    Company   on   the   freight   businesj 


handled  by  that  company  in  October,  1912,  of  more  than 
$100,000  when  compared  with  wliat  they  would  have  been 
in  October,  1909.  In  other  words,  if  the  same  rates, 
classifications  and  conditions  had  been  in  effect  in  1912 
that  were  in  effect  in  1909,  the  Baltimore  &  Ohio  Railroad 
Company  would  have  received  in  October,  1912,  $100,000 
more  than  it  did  receive  for  the  business  actually  handled 
ill  that  month,  and  it  is  estimated  that  for  the  year,  such 
■  Iccreases  would  amount  to  not  less  than  $800,000. 

I  mention  the  Baltimore  &  Ohio  figures  because  I  hap- 
pen to  have  them  in  mind,  and  because  I  believe  that  con- 
'  lit  ions  on  that  road  are  not  unlike  what  they  are  on  the 
other  roads  in  similar  territory. 

Not  only  has  the  general  basis  of  rates,  as  I  have 
shown,  been  lowered  to  some  extent  by  orders  of  the 
regulating  commissions,  and  perhaps,  to  an  equal  or 
greater  extent  by  commercial  conditions  or  influences 
which  are  beyond  the  power  of  the  carriers  to  resist — • 
but  during  the  same  period  expenses  have  also  very 
greatly  increased,  as  I  will  endeavor  to  show. 

Again  in  the  case  of  the  Baltimore  &  Ohio,  the  wage 
increase  of  1910  amounted  to  approximately  $2,500,000 
per  year,  and  the  increases  which  have  been  granted — 
either  voluntarily  or  by  virtue  of  arbitration  awards — 
within  the  last  twelve  months  hav^e  resulted  in  adding 
over  $800,000  more  to  our  expenses  each  year.  Further, 
;is  is  well  known,  the  conductors  and  trainmen  are  now 
tiigaged  in  taking  a  strike  vote  for  the  purpose  of  enforc- 
ing their  demands  for  an  advance  of  approximately  17 
per  cent.,  and  while  it  is  not  likely  that  they  will  obtain 
;iil  they  ask  for,  it  is  probable  that  if  the  matter  should 
uo  to  arbitration  under  the  provisions  of  the  Erdman 
Act  as  it  now  stands,  that  they  would  receive  a  substan- 
tial increase. 

Prices  of  various  kinds  of  material  have  also  advanced 


since  1910.  The  coal  bill  of  the  Baltimore  &  Ohio  Eail- 
road  Company  amounts  to  approximately  $6,000,000  per 
year,  and  within  the  last  two  years  there  has  been  an 
advance  in  the  price  of  coal  of  upward  of  10  per  cent. 
The  increase  in  price  of  ties  has  also  been  considerable. 
Prices  asked  and  paid  for  locomotives,  freight  and  pas- 
senger cars  are  also  higher  today  than  was  the  case 
three  years  ago  for  equipment  of  the  same  kind. 

Legislation  of  various  kinds — both  state  and  federal — 
has  had  an  important  influence  upon  expenses.  The  so- 
called  Full  Crew  Bill,  which  has  become  a  law  in  many 
of  the  States,  requires  the  railroads  to  employ  an  extra 
man  on  all  trains  of  more  than  certain  length,  regardless 
of  the  local  conditions. 

The  hours  of  service  law,  boiler  inspection  law,  laws 
in  various  States  prescribing  standards  of  construction 
for  caboose  cars,  laws  with  reference  to  the  construction 
of  postal  ears,  revised  orders  with  reference  to  safety 
appliances  upon  new  equipment,  as  well  as  upon  exist- 
ing equipment ;  laws  with  reference  to  grade  separation, 
etc.,  etc., — all  have  tended  to  very  greatly  increase  the 
cost  of  operation.  It  is  not  my  purpose,  at  this  time,  to 
question  the  wisdom  of  any  of  the  laws  referred  to,  be- 
cause regardless  of  whether  they  are  wise  and  necessary, 
the  added  expense  is  there  and  must  be  paid. 

Taxes  have  increased  largely  during  the  last  three 
years.  In  the  case  of  the  Baltimore  &  Ohio  Company, 
the  increase  in  that  one  item  since  1909,  amounts  to  more 
than  $900,000  a  year.  I  think  it  is  perhaps  not  a  matter 
of  common  knowledge,  although  one  of  public  record, 
that  the  American  railroads,  as  a  whole,  pay  each  year 
in  taxes  more  than  $120,000,000,  a  sum  nearly  two  and 
one-half  times  as  much  as  the  total  amount  received  by 
all  the  railroads  for  carrying  the  mails. 

Another  very  important  element  to  be  considered  is 
the  rate  of  interest  which  railways  are  obliged  to  pay 


upon  new  capital  raised  for  improvements  and  better- 
ments. It  may  be  said  that  the  interest  basis  on  all  in- 
vestments has  been  raised  within  recent  years,  and  that 
the  very  best  securities  must  pay  higher  rates  today  than 
ever  before,  and  that  the  railroads  are  not  peculiar  in 
this  respect;  but  even  so,  they  are  still  required,  in  com- 
mon with  others,  to  pay  a  much  higher  rate  of  interest 
than  was  the  case  some  five  or  ten  years  ago.  Ten  years 
ago,  for  instance,  if  a  railroad  company  with  well  estab- 
lished credit,  decided  to  increase  its  capital  for  improve- 
ment purposes — we  will  say  $1,000,000 — it  was  custom- 
ary to  assume  that  the  interest  charge  on  that  account 
would  be  approximately  $40,000  per  year.  Under  exist- 
ing conditions,  the  interest  charge  would  be  between 
$50,000  and  $60,000  per  year  as  a  minimum,  and  in  some 
cases,  even  in  excess  of  $60,000.  This  item  alone,  as  you 
will  see,  becomes  very  important  when  large  systems — 
like  the  Baltimore  &  Ohio — are  spending  upward  of 
$20,000,000  a  year,  and  ought  to  do  so,  for  betterments, 
extensions  and  new  equipment  made  necessary  by  the 
growing  demands  of  a  constantly  expanding  commerce. 

Further,  the  public  demands,  expects  and  receives  a 
higher  standard  of  service  in  all  directions  than  has 
ever  been  the  case  before.  This  results,  for  instance,  in 
the  running  of  a  greater  number  of  passenger  trains  than 
the  business  itself  would  justify  over  the  lines  where 
the  traffic  is  light;  and  also  in  a  higher  standard  of 
freight  service — that  is  to  say,  carriers  are  required  to 
furnish  cars  more  promptly,  and  to  move  them  with  less 
delay.  While  no  one  recognizes  better  than  the  railway 
managers  that  the  service  is  not  always  satisfactory, 
and  is  frequently  not  such  as  they  would  like  to  furnish, 
I  believe  it  is,  nevertheless,  a  fact  that  upon  the  whole 
it  is  on  a  more  satisfactory  basis  today  than  ever  before, 
but  this  also  means  greater  expense  in  operation. 

The  various  influences  which  I  have  mentioned  have 


6 

all  tended  to  further  reduce  the  margin  between  income 
and  outgo,  and  it  has  become  so  narrow  that  the  rail- 
roads— ^many  of  them,  at  least — do  not  feel  justified  in 
further  increasing  their  capital  account,  regardless  of 
the  rate  at  which  money  may  be  obtained,  because  the 
burden  assumed  by  so  doing  might  seriously  interfere 
with  their  ability  to  maintain  reasonable  payments  upon 
their  capital  issues  already  existing. 

The  Federal  Census  report  of  1910  showed  that  during 
the  previous  decade,  capital  invested  in  agriculture  had 
increased  100  per  cent,  capital  invested  in  manufactures 
had  increased  105  per  cent,  and  capital  invested  in  rail- 
roads during  the  same  period  had  increased  only  40  per 
cent.  One  result  from  this  disparity  of  investment  was 
to  place  the  manufacturing  industries  as  a  whole,  when 
measured  by  the  amount  invested,  second  only  to  agri- 
culture, and  in  the  place  previously  occupied  by  the  rail- 
roads, while  the  railroads  in  turn  drop  back  from  second 
place  to  third. 

Mr.  James  J.  Hill,  in  an  address  delivered  in  Chicago 
in  1908,  said  that  he  was  convanced  that  the  railroads  of 
the  country  as  a  whole  should  spend  not  less  than  one 
billion  dollars  per  year  for  the  next  five  years  for  ad- 
ditions and  betterments,  including,  of  course,  equip- 
ment. The  published  reports  of  the  Interstate  Commerce 
Commission  show,  however,  that  during  the  four  years 
ending  June  30,  1908-09-10  and  11,  the  actual  invest- 
ment in  the  railroads  increased  $2,044,000,000,  or  at  the 
rate  of  $511,000,000  per  j^ear,  about  one-half  of  Mr.  Hill's 
estimate.  The  same  reports  also  show  that  the  net  earn- 
ings of  the  railroads  for  the  year  ending  June  30,  1911, 
after  paying  operating  expenses  and  taxes,  were  actu- 
ally $8,787,000  less  than  they  were  in  1907,  and  before  the 
additional  $2,000,000,000  had  been  expended,  and  the 
per  cent,  of  return  on  cost  of  road  and  equipment  in 
1911  was  only  4.97,  as  compared  with  5.82  in  1907. 


AVitli  the  situation  as  I  have  endeavored  to  show  it, 
clearly  in  mind,  those  responsible  for  the  policy  and 
management  of  the  railroads  in  ofiicial  classification 
territory-  have  become  seriously  concerned  regarding  the 
future  of  the  properties,  of  which  they  are  in  charge. 

I  hardly  think  it  is  necessary  to  take  your  time  for 
the  purpose  of  endeavoring  to  show  that  the  railroad  is 
necessary  as  a  means  of  transportation  in  a  cx)untry  of 
magnificent  distances,  such  as  the  United  States.  Of 
course,  it  is  recognized  that  there  can  be  no  such  thing 
as  commerce  without  transportation  of  some  kind,  and 
at  the  present  time  the  railroad  affords  the  only  means 
of  tiansportation  worthy  of  consideration,  so  far  as  the 
inland  traffic  of  the  country  generally  is  concerned,  and 
it  is  of  the  utmost  importance  if  industrial  development 
is  to  continue,  that  the  trans j>ortation  system  as  a  whole 
should  be  adequate  to  meet  the  reasonable  requirements 
of  the  countiy's  conmierce  at  all  times. 

If  I  am  not  mistaken  in  my  understanding  of  the  gen- 
eral situation-,  and  if  I  have  stated  it  to  you  as  it  actu- 
ally exists,  it  would  seem,  that  we  all  must  agree  that  we 
are  confronted  with  a  serious  condition,  and  one  worthy 
of  the  careful  and  dispassionate  thought  of  everyone  in- 
terested in  the  development  of  our  country.  Granting 
for  the  sake'  of  argument  that  the  situation  is  substan- 
tially as  I  have  stated,  it  seemed  to  me  that  the  most  im- 
portant question  next  to  be  considered  is — how  can  the 
matter  be  adjusted?  and  that  too,  for  the  best  interests 
of  all  concerned,  including  not  only  the  railroad  bond- 
holders, shareholders  and  employes,  but  also  from  the 
standpoint  of  the  manufacturer  and  consumer,  because 
in  the  last  analysis  the  consumer  is  the  one  who  will 
ultimately  pay  the  freight. 

It  was  suggested  in  case  No.  3400,  as  I  have  already 
shown,  that  the  railroads  had  not  only  failed  at  that  time 
to  establish  the  necessity  for  increased  revenue,  but  that 


8 

the  method  proposed  for  the  purpose  of  raising  addi- 
tional revenue  was  perhaps  not  the  best  or  fairest  under 
all  the  circumstances.    It  was  pointed  out  that  the  rela- 
tion of  rates  which  then  existed,  had  come  about  through 
a  long  period  of  competition  and  regulation,  and  that 
anything    which    tended    to    disturb    that    relationship 
should  be  avoided  if  possible.     In  light  of  all  that  has 
since  transpired,  I  am  personally  prepared  to  admit  the 
force  of  that  suggestion,  and  my  associates  are  also  gen- 
erally in  accord  and  when  it  was  decided  a  short  time 
since  to  take  the  matter  up  again  with  the  Interstate 
Commerce  Conmiission,  it  seemed  best  to  those  who  had 
given  the  subject  much  study,  that  instead  of  seeking 
to  obtain  the  necessary  revenue  by  the  methods  proposed 
in  1910,  it  would  be  better  to  obtain  it,  if  possible,  by  a 
small  percentage  of  advance,  uniformly  applied  to  all 
items.     It  was  believed  that  in  view  of  all  the  circum- 
stances the  increase  should  be  not  less  than  10  per  cent., 
but  desiring  to  obtain  the  necessary  relief  in  a  manner 
which  would  cause  the  least  possible  disturbance  of  ex- 
isting commercial  conditions,  it  was  concluded  to  ask 
permission  to  make  a  5  per  cent,  advance  only,  and  then 
should  it  develop  later  on  that  the  relief  so  obtained 
was  not  sufficient,  the  matter  could  be  given  further  con- 
sideration, in  view  of  the  then  existing  conditions. 

It  has  been  suggested  that  if  the  railroads  need  ad- 
ditional revenue,  they  ought,  before  making  any  general 
advance,  to  raise  certain  rates  now  in  effect  which  are 
quite  generally  believed  to  be  too  low.  The  carriers 
recognize  the  force  of  that  argument,  and  they  hope  to 
be  able,  as  time  goes  on,  with  the  assistance  of  the  In- 
terstate Commerce  Commission  and  also  of  the  shippers 
themselves,  to  bring  about,  if  possible,  a  more  equitable 
rate  adjustment ;  but  a  careful  review  of  that  question— 
with  particular  reference  to  the  business  handled  by  the 
Baltimore  and  Ohio  Company— shows  that  even  if  all 


9 

the  low  rates  referred  to  could  l>e  advanced,  and  that, 
too,  without  aifecting  the  amount  of  business  handled, 
the  increased  revenue  so  obtained  would  be  less  than 
half  a  million  dollars,  and  while  of  course  that  amount 
when  considered  by  itself  is  a  large  sum  of  money,  it 
is  not  at  all  atlequate  for  the  requirements  of  the  situa- 
tion. 

Further,  it  should  l)e  borne  in  mind  that  commissions 
will  continue  from  time  to  time  to  order  specific  rates 
reduced,  because  they  are  found  to  be  relatively  too  high, 
and  commercial  conditions  will  also  tend  to  bring  about 
reductions  in  the  future,  such  as  I  have  shown  to  have 
taken  place  in  the  last  three  years. 

Three  years  ago  the  commission  said  tliat  the  rail- 
roads had  failed  to  establish  a  necessity  for  increased 
revenue.  I  believe  that  necessity  is  apparent  to  all  at 
the  present  time.  It  suggested  that  the  plan  then  pro- 
posed was  not  the  right  one,  and  with  that  suggestion 
the  railroads  now  agree,  and  they  have  proposed  another 
method  which  seems  under  all  the  circumstances  to  be 
fair  and  equitable.  It  was  also  suggested  that  if  rates 
were  to  l>e  raised  at  all,  it  should  be  done  when  times 
were  good,  and  upon  the  whole  business  was  never  better 
than  it  is  at  the  present  time. 

I  have  used  chiefly  in  support  of  my  arguments,  figures 
referring  specifically  to  the  Baltimore  &  Ohio  Railroad. 
I  have  done  this  because  I  am  naturally  more  familiar 
with  the  affairs  of  that  company  than  with  the  railroads 
as  a  whole  in  the  territory  involved,  but  I  think  it  can 
safely  be  said  that  the  Baltimore  &  Ohio  Company  is 
typical  of  the  situation.  There  are  doubtless  some  rail- 
roads interested  in  this  present  move  which  do  not  need, 
at  this  time,  such  an  increase  of  revenue  as  might  come 
from  the  proposed  advance  in  rates,  and  there  are  doubt- 
less others  which  should  have  a  much  greater  increase 
than  Iho  oTio  proposed,  n?Hl  in  tliai  ponnoj'tion  \i  mny  1)0 


10 

recalled  that 'Commissioner  Prouty  in  discussing  the 
New  York  Central,  Pennsylvania  and  Baltimore  &  Ohio 
Companies  in  case  No.  3400,  used  the  following  words : 

"  Under  rates  reasonable  for  these  three  systems 
there  may  be  lines  whose  earnings  will  be  extrav- 
agant, but  that  is  their  good  fortune.  There  may 
be  lines  which  can  not  make  sufficient  earnings, 
but  that  is  their  misfortune.  We  out  not  to  impose 
upon  this  territory,  for  the  purpose  of  allowing 
these  defendants  additional  revenues,  higher  rates 
than  are  adequate  to  these  three  systems  considered 
as  a  whole." 

It  is  believed  that  the  increased  rates  proposed  are  fair  and 
reasonable  when  considered  in  connection  with  the  opera- 
tions and  requirements  of  the  three  railroads  specifically 
referred  to  by  the  Commission,  and  it  is  urged  that  if  they 
are  reasonable  when  so  considered,  they  ought  not  to  be 
withheld  simply  because  they  might  result  in  greater 
earnings  on  the  part  of  some  other  cai-rier,  than  v^ould  be 
justified,  when  considered  of  and  by  itself. 

I  wish  to  say  just  a  word  with  reference  to  the  general 
railroad  situation.  There  can  no  longer  be  any  doubt  that 
the  public  has  ample  and  efficient  machinery  for  the 
thorough  control  and  regulation  of  the  railroads.  We 
have  not  only  a  Federal  Commission  in  Washington  which 
has  been  granted  the  widest  possible  powers  to  regulate 
and  supervise,  but  we  have  also  commissions  in  nearly  all 
of  the  individual  States,  with  powers  relatively  as  great  as 
those  delegated  to  the  Fedei-al  body.  The  Intei-state 
Commerce  Commission  is  empowered  to  prescribe  the 
manner  in  which  the  railroad  accounts  shall  be  kept,  even 
to  the  minutest  detail,  and  the  roads  are  now  keeping 
their  accounts  in  harmony  with  the  requirements  of  the 
Commission.  It  is  also  provided  by  law,  under  penalty  of 
heavy  fine  and  imprisonment,  that  no  discrimination  shall 
be  shown  either  with  reference  to  rates  paid  or  service 
given,  as  between  individuals  or  commimities. 


11 

It  has  come  to  be  uuderetood  that  the  railroad  is  a  semi- 
public  iustitution,  and  that  it  is  expected  to  treat,  and 
must  treat,  all  with  equal  faii'ness.  The  executives  in 
charge  of  the  railways  by  virtue  of  what  has  come  about, 
occupy  the  dual  position  of  semi-public  officers,  charged 
with  the  duty  of  operating  the  properties  in  harmony  with 
the  laws  of  the  country,  and  also  with  the  equally  impor- 
tant duty  of  trustee,  representing  those  whose  money  is 
invested  in  the  enterprise.  It  should  be  remembered  that 
although  the  railroad  is  considered  a  public  utility  with 
important  public  functions  to  perform,  it  nevertheless 
ovv^es  its  very  existence  to  the  employment  of  private 
capital,  and  Mr.  Commissioner  Prouty  has  well  said  in 
one  of  his  public  addresses  that  "we  can  provide  by 
legislation  the  sort  of  cars  which  a  railroad  shall  use, 
and  the  rates  which  it  shall  impose;  we  cannot  by 
legislation  force  one  single  dollar  of  private  capital  into 
railroad  investment  against  its  will". 

Those  who  to-day  manage  the  railroads  are  chiefly  men 
who  have  devoted  the  greater  part  of  their  lives  to  that 
service,  and  will  not  as  a  rule  be  personally  afiCected  one 
way  or  the  other  by  the  outcome  of  this  movement.  They 
appreciate  fully  their  obligations  to  the  public,  while  at 
the  same  time  not  unmindful  of  their  duty  as  trustees,  and 
I  should  personally  feel  that  I  had  failed  absolutely  to 
measure  up  to  the  requirements  of  my  position,  if  I  felt  as 
I  do  about  the  situation  and  remained  silent.  I  feel 
it  incumbent  upon  me  as  the  chief  executive  of  the 
Baltimore  &  Ohio  Company,  to  do  what  I  can  to  bring  the 
situation  as  I  see  it  clearly  before,  not  only  the  Commission 
which  in  the  end  will  decide  the  question  at  issue,  but  also 
before  those  who,  like  yourselves,  are  vitally  interested  in 
the  proper  solution  of  this  problem.  Should  the  Commis- 
sion, however,  after  a  full  hearing,  decide  again  against 
the  contention  of  the  carriei-s,  I  at  least— and  I  am  sure  I 
can  speak  with  equal  clearness  concerning  my  associates — 
shall  continue  to  do  the  best  that  I  am  able  to  meet  the 
requirements  of  the  situation,  but  it  ought  to  be  clearly 


12 

understood  that  in  that  event  the  policy  of  cheapness 
instead  of  quality,  which  the  railroads  have  already  been 
obliged  in  a  measure  to  adopt,  must  of  necessity  be  con- 
tinued, and  I  cannot  believe  that  the  American  people 
want  their  railroad  system  run  permanently  on  that  basis. 
Before  closing,  I  wish  to  quote  from  the  language  used 
by  Mr.  Commissioner  Lane,  now  Secretary  of  the  Interior, 
in  his  report  given  in  case  known  as  No.  3500,  with  refer- 
ence to  this  same  question.  He  says,  speaking  for  the 
Commission : 

"We  do  not  say  that  the  carriers  may  not  in- 
crease their  income.  We  trust  they  may,  and 
confidently  believe  they  will.  If  the  time  does 
come  when  through  changed  conditions  it  may 
be  shown  that  their  fears  are  realized,  or 
approaching  realization,  and  from  a  survey  of  the 
whole  field  of  operations  there  is  evidence  of  a 
movement  which  makes  against  the  security  and 
lasting  value  of  legitimate  investment  and  an 
adequate  return  upon  the  value  of  these  properties, 
this  Commission  will  not  hesitate  to  give  its 
sanction  to  increases  which  will  be  reasonable," 

Conscious  of  the  statements  that  are  sometimes  made 
concerning  the  alleged  over-capitalization  and  excessive 
freight  rates  of  American  railroads,  I  wish  to  quote  again 
from  one  who  has  justly  earned  his  title  as  empire  builder, 
and  who  is  qualified  because  of  a  lifetime  experience  and  a 
careful  study  of  the  whole  question  to  speak  with  author- 
ity. The  following  quotation  is  taken  from  Mr.  James  J. 
Hill's  book,  entitled  "Highways  of  Progress"  : 

"The  American  railway  pays  the  highest  wages 
in  the  world,  out  of  the  lowest  rates  in  the  world, 
after  having  set  down  to  capital  account  the 
lowest  capitalization  per  mile  of  all  the  great 
countries  of  the  world." 

Of  what  other  great  American  industry  can  the  same 
claim  be  made  and  successfully  defended  ? 


I 


